Livestock Analysis (VIP) -- January 31, 2014

Price action: Lean hog futures settled at or near session highs today with gains of 87 1/2 to $1.47 1/2 for the day. The exception was the February contract, which ended 15 cents lower on the day. Most contracts posted moderate gains for the week.

5-day outlook: Lean hog futures will likely be headed for a test of yearly and contract highs if the market sees followthrough buying next week. Improvement in the pork market helped a number of contracts to post upside breakouts this week. If the product market continues to strengthen, the lean hog market will continue to strengthen.

30-day outlook: The pork market is expected to benefit from consumer resistance to recent record-highs in the boxed beef market as retailers will begin passing these prices on to consumers in February. This should limit downside risk in futures over the near-term.

90-day outlook: Supplies typically begin to tighten in the spring, which should point the product as well as the cash markets higher. This could be even more pronounced if the porcine epidemic diarrhea virus continues to tighten supplies. The impact of PEDV remains a significant unknown.

Hedgers: Carry all risk in the cash market for now.

Feed needs: 25% of 1st-qtr. protein needs are covered in long March meal futures at $410.80.

Cattle

Price action: Live cattle futures posted slight to moderate losses in nearby contracts, while deferred months were mixed. The market saw a varied close for the week, with some contracts posting gains and others losses. Feeder futures ended the day stronger, with March futures posting slight losses for the week.

5-day outlook: Weakness in the boxed beef market this week strongly suggests the market has posted a near-term and possibly a major high. At press time, active cash cattle trade had not yet begun, which signals feedlots are digging their heels in deep and resisting lower prices from packers. Earlier this week light cash trade was reported at $1 to $4 lower than week-ago. If beef values continue to soften next week, it would point to more near-term price pressure for nearby futures.

30-day outlook: But deferred futures were supported this week by prospects for tightening supplies. In fact, far-deferred futures signal cash prices will trade in the low- to mid-$130s level well into 2015.

90-day outlook: This afternoon's Cattle Inventory Report reminded the market of the tight supply situation, as all cattle and calves came in at 98% of year-ago levels. But the report also revealed beef heifer retention wasn't as aggressive as thought. A slower-than-expected build in the industry's female "factory," lengthens this period of herd rebuilding and tight supplies.

Hedgers: Fed cattle producers are long April $136.00 put options at $1.325 covering remaining 1st-qtr. and 50% of 2nd-qtr. marketings and are short the same number of April $144.00 call options at $1.525.

Feed needs: 25% of 1st-qtr. protein needs are covered in long March meal futures at $410.80.